Investing.com — Here’s your professional summary of the key takeaways from Wall Street analysts from the past week.
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Roblox
What happened? On Monday, Morgan Stanley upgraded Roblox Corp (NYSE:) to Overweight with a $65 price target
*TLDR: Morgan Stanley sets Roblox target multiple at a premium of 25%. Bullish scenario values Roblox at $110 per share.
What’s the full story? Morgan Stanley has set a target multiple for Roblox that represents a 25% premium compared to its internet peers. The bulging bank justifies this premium by highlighting Roblox’s extensive user growth potential, high engagement levels, and a robust user-generated content (UGC) ecosystem. Additional, Morgan Stanley (NYSE:) sees significant opportunity for Roblox to expand into high-margin revenue streams such as advertising and e-commerce.
In its bullish scenario, Morgan Stanley values Roblox at $110 per share, based on a target EV/EBITDA multiple of 34x, reflecting 76% EBITDA growth from 2023 to 2026. This scenario assumes that advertising revenue will grow much faster than in the base scenario. , with e-commerce also contributing to growth from the same year. The bank expects a substantial acceleration in these new lines of business as Roblox continues to monetize its rapidly growing user base.
Overweight at Morgan Stanley means: “The stock’s total return is expected to exceed, on a risk-adjusted basis, the average total return of the analysts’ (or sector team’s) sector coverage universe over the next 12 to 18 months.”
Carvana Co.
What happened? On Tuesday, Morgan Stanley upgraded Carvana (NYSE:) to Equalweight with a $260 price target.
*TLDR: Carvana’s third quarter profitability exceeded expectations thanks to strong operating leverage. A positive cash flow supports self-financing and debt reduction.
What’s the full story? Morgan Stanley analysts were pleasantly surprised by Carvana’s increased profitability in the third quarter, despite slightly above-expected revenue growth. Carvana demonstrated substantially positive operating leverage, with SG&A costs per store unit continuing to decline. Adjusted EBITDA margins of 11.7% were almost 200 basis points higher than Morgan Stanley’s forecast. The company leverages its national used car digital platform, which includes vertically integrated purchasing, reconditioning and inventory/fleet/logistics management. This SG&A leverage, historically absent in the industry, has now turned the corner and delivered industry leading double-digit EBITDA margins. The third quarter results showed EBITDA and cash flow more than a year ahead of previous forecasts.
Carvana, which currently has just 1% of the US used car market, is approaching peak retail volumes from 2021/2022. The difference this time is the company’s ability to generate efficiencies in terms of gross margin and SG&A/gross, with fulfillment infrastructure capacity approximately double the current run rate. Gross margins used have more than doubled since 2021, while SG&A expenses/gross have halved. The third-quarter results suggest that Carvana has reached “breakout velocity” in terms of profitable growth, which appears to be more than a temporary phenomenon. Additionally, the company generates positive free cash flow, supports self-financing, and has the ability to pay down its $5.6 billion in corporate debt over time.
An equal weight at Morgan Stanley means: “The stock’s total return is expected to be in line with the average total return of the analysts’ (or sector team’s) sector coverage universe, on a risk-adjusted basis, over the next twelve to eighteen months. ”
Snowflake Inc .
What happened? On Wednesday, Monness upgraded Crespi Hardt Snowflake (NYSE:) to Buy with a $140 price target.
*TLDR: Monness upgrades SNOW ahead of Q3 earnings; valuation attractive. Long-term AI benefits expected; avoiding restructuring can increase margins.
What’s the full story? This Monness upgrade comes ahead of SNOW’s Q3 earnings report, scheduled for November 20. Despite a 41% decline this year through 2024 and a 73% decline from its late 2020 peak, MCH analysts find Snowflake’s valuation increasingly attractive. They highlight the company’s accelerated pace of innovation this year, which they say will start delivering results over the next 12 to 18 months.
The MCH analysts also note that while the generative AI hype of 2023 has not translated into significant revenue for the software sector in 2024, they expect Snowflake and the industry to benefit from this trend in the long term.
Furthermore, Snowflake’s decision to avoid the severe restructuring measures in the technology sector could yield a significant margin benefit in the future if necessary.
Buying from Monness Crespi Hardt means that “the security is expected to outperform the market by 10% or more over the next six to twelve months.”
SolarEdge Technologies
What happened? On Thursday, Piper Sandler downgraded its rating SolarEdge Technologies Inc (NASDAQ:) to underweight with a price target of $9.
*TLDR: Piper downgrades SEDG to Underweight; The results for the third quarter and expectations for the fourth quarter are disappointing. Challenges in the European market and cash flow issues result in a price target of $9.00.
What’s the full story? Piper’s expectations for SolarEdge Technologies (SEDG) were already low, but the latest update still managed to disappoint. Q3 2024 results were disappointing, with higher-than-expected depreciation and significant cash burn despite guidance alignment. Fourth quarter revenue expectations fell 40% short of expectations, due to declining European battery sales and aggressive pricing and promotions for European inverters. Piper finds the successive decline in revenue troubling, especially as SEDG is no longer reducing inventories of its US channel.
With normal levels of Days Sales Outstanding and Days Payable Outstanding, subdued distribution revenue and higher U.S. manufacturing costs expected for Q4 2024 and Q1 2025, Piper sees no formal plan to reset its workforce . Combined with the challenges in the European market and competition from Tesla (NASDAQ:), Piper is struggling to envision an improvement in cash flow next year and expects another capital raise. Radical cost cuts are deemed necessary for survival, prompting Piper to downgrade SEDG to Underweight due to balance sheet risks heading into 2025, with a price target of $9.00 per share.
Underweight on Piper means: “It is expected to underperform the median of the group of stocks covered by the analyst.”
Bath and body works
What happened? On Friday, Barclays downgraded Bath & Body Works Inc. (NYSE:) to Underweight with a price target of $28.
*TLDR: Barclays downgrades Bath & Body Works; the mentioned supply and demand risks. Weak consumer spending and aggressive promotions expected in 2025.
What’s the full story? Barclays has downgraded Bath & Body Works shares due to concerns about supply and demand risks over the next 12 to 15 months. Although risks have largely been reduced in the second half of 2024 due to recent guidance changes, the bank expects continued negative sales and shrinking margins in 2025. Barclays’ supply analysis indicates inventory is building in anticipation of a sales recovery, while demand analysis points to aggressive promotions, suggesting weak consumer spending.
The downgrade is driven by several factors: a weakening US consumer that is likely to continue into 2025, recent data points in the US beauty segment showing worse-than-expected performance (including companies like Estée Lauder and Coty (NYSE:)), and an early start to promotional activities for the holidays. Barclays believes retailers will compete fiercely for consumer spending this holiday season, a trend that is not expected to reverse in 2025.
Underweight at Barclays means that “the stock is expected to perform below the unweighted expected total return of the sector coverage universe over a twelve-month investment horizon.”
